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Ensuring Market Integrity and Stability: Circuit Breakers on International Trading Venues

Source:
Journal of Trading, Vol. 12, Issue 1, pp. 42-54
Year:
2017
Authors:
Benjamin Clapham,
Peter Gomber,
Martin Haferkorn,
Paul Jentsch,
Sven Panz
Reseach Area:
Financial Markets
Abstract:

Circuit breakers are important mechanisms used to prevent excess short-term volatility and to ensure price continuity. This article presents the results of an international survey on the design and application of circuit breakers on trading venues worldwide. The majority (86%) of the responding trading venues apply circuit breakers and thereby aim to ensure investor protection and increase market integrity and stability. On cash markets, market-wide trading halts and volatility interruptions are the most prevalent types of circuit breakers (72%). On derivatives markets, most exchanges coordinate their circuit breaker with their cash market (40%), followed by marketwide trading halts (20%) and volatility interruptions (13%). Most circuit breakers do not differentiate between upward and downward market movements. There is also support for greater coordination of circuit breakers across venues, and a few exchanges (32%) already coordinate their circuit breakers with other venues.

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